Landmark Changes to the Liquor Code

In December we reported that the Pennsylvania Senate had approved liquor reforms that were acceptable to the Governor, but that the Pennsylvania Legislature had yet to approve any such change. In June, the Legislature finally passed the Liquor Reform Bill and on June 8, 2016, Governor Wolf signed into law the most substantial changes to the Liquor Code since the 1930s. The new law provides many changes to the Liquor Code, which will have an effect on many liquor licensees and consumers. Some of the notable changes are as follows:
• Wine Sales
Restaurant and hotel licensees will now be able to sell up to 3,000 milliliters (4 bottles) for off-premises consumption. The Liquor Control Board (“LCB”) will charge licensees an initial $2,000 permit fee, however renewals of that permit will equal 2% of the cost of wine purchased from the Board and sold for off-premises consumption in the prior year. Unlike takeout beer sales, off-premises wine sales must cease by 11 PM. Convenience stores and grocery stores that have R-licenses will be permitted to offer wine for off-premises consumption. Wine sold for off-premises consumption cannot be sold for less than it is available for at State Stores. Consumers will now be entitled to purchase wine directly from producers or importers that are licensed by the LCB or from another state or country provided the producer or importer pays a $250 initial application fee and yearly renewal fee of $250. Direct shippers are permitted to mail up to 36 cases per year, per customer. Mailed shipments of wine must be accepted in person by an adult with proof of age required prior to delivery. Wine sold via direct shipment may only be purchased for personal use; Pennsylvania liquor licensees are prohibited from buying wine via direct shipment.
• Special Orders by Licensees
Licensees will be permitted to special order liquor products not offered by the LCB. Special Liquor Orders (“SLO”) purchased by a licensee will only be charged a 10 percent mark-up (currently it is a 30 percent mark-up), however SLOs will not be eligible for the 10 percent licensee discount currently available. The LCB has the discretion to deny a SLO if it carries an item that is substantially similar, or if it decides that it should offer the product as one of its listings.
• Conversion of Eatery Licenses
The holders of Eatery Licenses (“E-licenses”) in all counties (except for cities of the first class which include Philadelphia and Pittsburgh) will be permitted to convert their E-licenses into Restaurant (R-licenses) for a $30,000 fee to the LCB. E-license conversions may occur without regard to otherwise applicable quotas within the municipality or county. Once the conversion is approved by the LCB, the E-license is removed and the licensee is issued a new R-license.
• Deactivated Licenses
The new law authorizes the LCB to reissue R-licenses that were deactivated due to nonrenewal or revocation by the LCB. The LCB will auction licenses that were deactivated as far back as December 31, 1999. Eligible licenses are to be placed on a list in March of each year, applications to bid on that license must be made by May 15th of the year in which they become available, and an actual auction will be held by June 1st of each year. The eligible licenses must fetch the Commonwealth more than $25,000 at auction. If the winning bidder is unable to pay for the license within two weeks after the auction, the licenses will be offered to the second highest bidder. The license may not go into the municipality where it had been prior to being removed by the LCB, and the receiving municipality must approve a transfer before it can go into its new location.
• Safe Keeping
The new law reduces the period a license can remain in safekeeping from three to two years. The annual fee to keep a license active after two years in safe keeping will double.
• Economic Development License Requirement
Licenses issued for Economic Development will have the food to alcohol sales ratio lowered from 70% to 50%.
• Renewal Fees
License renewal fees will increase by $700.
• Bed and Breakfast
Bed and breakfast owners will be allowed to provide up to one bottle of wine to their paying guests provided the wine is a Pennsylvania preferred alcoholic product from a licensed limited winery in the Commonwealth.
• Gas Stations
The new law codifies recent LCB and Commonwealth Court opinions regarding the service of alcohol at places that sell liquid fuels provided that the alcohol sales and fuel sellers are different entities, and purchases occur at different and distinct points of sale.
• Hotel Licenses
Hotel management companies will be able to apply for liquor licenses. Hotel licensees will be subjected to the same clean air (i.e. non-smoking) requirements as R-licenses.
• Casino Liquor Licenses
Casinos will be able to apply for a “casino liquor license.” There will be a one million dollar application fee, one million dollar renewal fee for the first four years and renewal fee of $250,000 every year after that. Casino licensees may sell beer, wine and liquor 24 hours a day, seven days a week. Casino licensees are not permitted to sell alcoholic beverages for off-premises consumption, however they may give off-premises beer and wine free of charge at invitation only events.
• Off-Premises Catering Permits
Licensees currently permitted to hold off-premises catering events may apply for an off-premises catering permit after the current March 1st deadline provided they are in good standing as a licensee. After March 1 off-premises catering fees increase. Licensees entitled to off-premises catering permits will be able to increase the number of events from 50 to 52 per year. The written notice requirement of an event to the LCB will be reduced from 30 days to 14 days. Off-premises catering events may extend until 2:00 am on New Years Day.
• Airport Liquor License
The LCB will establish a new category of license not subjected to current county quotas for airports. Airport licensees will be permitted to sell alcohol from 5 AM to 2 AM of the following day.
• Performing Arts License
The seating requirement for a performing arts licensee venue will be reduced from 250 to 150 seats.
There are some other items that may not have a direct impact on licensees or consumers but could have major implications in the years to come.
• LCB Privatization
The new law establishes a liquor study commission consisting of twelve members. The commission will be made up of the four chairmen of the standing committees, three legislators from each chamber (two appointed by majority leaders: one appointed by minority leaders). The commission will be tasked with studying the current liquor distribution system, its ability to meet the demand from retailers; impact on consumers; the costs if state store system is privatized; best practices in other states; impact on annual fiscal stability and the impact of possible public sector job loss. The commission will report to the General Assembly in six months to make recommendations to improve the Liquor Code. The General Assembly is to consider and act on recommendations of the Commission by June 2017.
• Miscellaneous
The alcohol by volume for cider is increased from 5.5% to 8.5%.
Limited distillers, wineries and brewers may sell one another’s products by the glass.
Limited distilleries may go from two to five locations.
Mandatory minimum membership in veteran organizations will be reduced from 100 to 50.
If you have any questions regarding these changes, please contact our office.